We get this question a lot. And the answer isn’t always black or white. Whether you should choose high or low car insurance deductibles depends on several factors, including what kind of vehicle you drive, your driving history, and how much you can afford to pay out of pocket for repairs.
Today, we’ll cover how deductibles for auto insurance work, the pros and cons of choosing high and low deductibles, and how to choose the right amount for your lifestyle.
What’s a deductible?
A deductible is the amount of money you will pay out of pocket if you get into an accident and need to file a claim with your insurance company. After you pay your deductible, your insurance company will pay the remaining balance to cover damages, up to your coverage limits, if they accept your claim.
Deductibles allow you and your insurance company to share the risk.
How do deductibles for auto insurance work?
Your deductible applies to the comprehensive and collision portions of your insurance policy. It doesn’t apply to your liability insurance. In other words, it applies to coverage for your own vehicle when you’re at-fault or partially at-fault in an accident.
As a reminder, collision coverage helps pay for repairs after an accident that involves your vehicle colliding with another vehicle or fixed object (like a tree, curb, or wall). Comprehensive coverage offers protection in events other than collisions, like weather-related damage and accidents involving animals, theft, or vandalism.
Uninsured or underinsured motorist insurance provides you extra coverage if you’re involved in an accident that wasn’t your fault and the other party doesn’t have enough insurance to cover damages. Liability coverage will offer you coverage if you’re found liable for another person’s injuries or damage to their property.
Let’s say your auto insurance deductible is $1,000 and you get into an accident. It’s your fault, and you’ve caused $5,000-worth of damage to your vehicle. You would have to pay the first $1,000, and your insurance company will cover the additional $4,000.
If you get into a smaller accident and the cost to repair the damage is less than your deductible, you may not want to file a claim with your insurance company. It could cause your premium to increase, and your insurer won’t help pay for any of the repairs anyway.
What’s the average amount for a car insurance deductible?
$500 and $1,000 are the most common deductible amounts, but they can be as low as $250 or even $0 (rare), depending on your state and carrier.
What are the pros and cons of high and low deductibles?
Keep in mind that higher deductibles usually mean lower premiums, and lower deductibles mean higher premiums.
High Car Insurance Deductibles
If you’re looking to lower your monthly premiums, you may want to consider a higher deductible. Let’s say you raise your deductible from $500 to $1000 and keep a squeaky-clean driving record all year long. You could shave off a significant chunk from your premiums each month, resulting in substantial savings throughout the year. Ask your insurance agent exactly how much raising your deductible could save you monthly.
Low Car Insurance Deductibles
The lower your deductible is, the less you’ll have to pay out of pocket if you get into an accident. But remember that if you choose a low deductible, your insurance premiums will be higher.
Lower deductibles can give you peace of mind, especially if you’re more accident-prone or don’t have the budget to come up with a high deductible amount at a moment’s notice. If you lease or finance your vehicle, you may be required to carry a lower deductible amount.
How do I choose the best car insurance deductible?
Ask yourself the following questions before deciding on the right deductible amount for you.
Can you afford a high deductible amount out of pocket?
What’s your emergency fund looking like these days? If it’s running low or nonexistent, consider a lower deductible. Be sure to choose an amount you can afford to pay out of pocket.
How much could a high deductible save you throughout the year?
Conversely, how much will you save if you have a lower deductible and get into an accident? Keep in mind that accidents can also cause your premiums to rise.
What’s your driving record?
If you have a cleaner record with few or no accidents, you might benefit from choosing a higher deductible. You may also qualify for safe driving discounts. If you’ve been in several accidents or gotten a lot of tickets lately, you could benefit from sticking with a lower deductible.
What kind of vehicle do you drive?
If you have a new or highly valuable vehicle, it will cost you more to insure than an older one would. Higher deductibles make more sense for newer and more expensive vehicles because you can end up saving a lot of money on your regular insurance payments. And repairs will likely cost a lot more than they would on an older car, so your potential savings can be substantial, even with a $1,000 or higher deductible.
On the flip side, lower deductibles often make more sense for older or less valuable vehicles. Think about how much money you’d be willing to put into repairing your car. Would you spend $1,000 to repair a car worth $1,500? Or would you look for a new vehicle at that point? Sometimes older cars don’t require full coverage, either. If you’re planning on running an old car into the ground, you may only need liability insurance.
Are you financing or leasing?
When you lease a vehicle, you’re responsible for returning it to its owner in good condition. In this case, it’s smart to choose a low deductible and better coverage.
Keep in mind that your deductible doesn’t include the initial amount you put down when you lease a car. If your car is totaled, the down payment you made won’t impact your insurance deductible amount. So if your deductible is $1,000, for example, and you put down $3,000 when you lease your car, you’ll be out $4,000 if you get into an accident.
Should you consider different deductibles for different types of coverage?
Possibly. Comprehensive coverage can be cheaper than collision coverage. So it could be more affordable for you to choose a lower deductible for comprehensive and a higher deductible for collision. It may be worth checking into to see how much you can save.
If you need help choosing the right car insurance deductibles or you want to shop around for more affordable insurance coverage, contact Coverage Direct.